Landlord takes over 8 S.D. buildings

Cabi missed Oct. debt repayment

Office landlord Hines has acquired eight commercial buildings in San Diego as part of a distress sale of a portfolio of more than 50 Southern California buildings.

Houston-based Hines secured the buildings from Cabi of Miami, a subsidiary of Mexican real estate developer GICSA. Cabi had purchased the cluster of buildings from Arden Realty in May 2007 for $1.51 billion and financed the transaction with $1.35 billion in debt.

Although it sold some buildings to pay down debt, Cabi missed a scheduled $105 million debt repayment in October, according to filings with the U.S. Securities and Exchange Commission from one of the lenders.

Hines was the lead lender on the Cabi debt, along with 11 other lenders. It reached an agreement with Cabi after the missed payment.

“It was a negotiated agreement instead of a foreclosure, with the net effect of Hines taking over the properties,” said Paul Twardowski, a Hines vice president in San Diego.

Real estate experts have been watching commercial real estate for signs of weakness in recent months. Just a year ago, offices, retail malls and other commercial properties sold for sky-high prices across the country – including in San Diego.

But with the weakening economy contributing to higher vacancies and less revenue, some landlords are expected to have trouble repaying the debt they used to buy buildings.

There remains uncertainty whether commercial loan defaults will become a widespread problem. Many buyers didn't use much debt in their purchases – such as the Irvine Co., which has bought numerous San Diego office buildings recently – so they're less affected. Others, such as privately held Hines, are large institutional investors with deep pockets.

But some commercial landlords may face tougher times.

“Every situation is different,” Twardowski said. “Certainly there's reason to believe there's going to be turmoil in the real estate capital markets, which may cause more changes in ownership, whether voluntary sales or not.”

The bulk of the former Cabi properties were located in Los Angeles. The remainder were in Ventura, Orange and San Diego counties.

For Hines, the addition of the Cabi properties adds about 375,000 square feet to its roughly 700,000 square feet of buildings n San Diego County. Hines already owns the new La Jolla Commons office tower in University City, which opened earlier this year. It also owns Golden Eagle Plaza at 525 B St. downtown.

The newly acquired buildings include Three Governor Park, Carmel Valley Centre I & II, the three-building Legacy Creekside project in Sorrento Valley and Foremost Professional Plaza and Bernardo Regency Center in Rancho Bernardo.

Some of the buildings have substantial vacancy. Three Governor Park is only 38 percent leased, according to CoStar, a real estate research firm. Bernardo Regency Center is less than half leased.

Twardowski said Hines' first priority is to take care of the tenants in the buildings.